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July 30, 2013

States Improve Budget Decisions by Using Cost-Benefit Analyses, Study Finds

Study finds, though, most states lag in use of key decision-making approach

States that use cost-benefit analyses tend to make better investments of public dollars by identifying programs and policies that deliver high returns, a new study has found.

The majority of states, however, have yet to consistently use this approach when making critical decisions, according to a report released Monday by the Pew-MacArthur Results First Initiative, a project of The Pew Charitable Trusts and the John D. and Catherine T. MacArthur Foundations.

Today, states struggle under continuing pressure to direct limited dollars toward the most cost-effective programs and policies while curbing spending on those that fail to deliver.

The study found that 10 states–Florida, Kansas, Minnesota, Missouri, New York, North Carolina, Utah, Virginia, Washington and Wisconsin–were in the vanguard using cost-benefit analyses to generate answers about programs’ return on investment and to drive policy decisions, particularly in their largest budget areas.

Twenty-nine states and the District of Columbia were using cost-benefit analyses, but less effectively or consistently. Eleven states trailed: Arizona, Idaho, Kentucky, Montana, Nevada, North Dakota, Rhode Island, South Carolina, South Dakota, West Virginia and Wyoming.

“Many policymakers are looking for information that would allow them to target cuts more strategically, rather than make across-the-board reductions that treat effective and ineffective programs alike,” Gary VanLandingham, director of the Results First Initiative, said in a statement.

“Policy and spending choices should be based on evidence about what works and what does not. The bottom line is while the use of cost-benefit analysis is growing, states should be making wider and better use of this approach.”

Researchers evaluated states’ use of cost-benefit analysis on the number of cost-benefit studies released per year during the 2008–2011 study period, whether these studies had assessed multiple program options to compare policy solutions and whether and the extent to which study findings had influenced budget and policy decisions.

All 50 states and the District of Columbia conducted at least one study between 2008 and 2011, a total of some 350 cost-benefit analyses, with the majority concentrated in 12 states. Most of these reports focused on major budget priorities.

Twenty-nine states and the District of Columbia conducted at least some studies that evaluated multiple policy options for making smarter investments of public dollars.

And 36 states reported that at least one of their cost-benefit analyses had either directly influenced budget and policy actions or, more generally, initiated and informed public and political discourse about issues.